Chart of The Day USDCNH

USDCNH Potential Reversal Zone & Probable Price Path

USD: Hopes of a pre-election fiscal stimulus continued to fade, pushing the S&P 500 down by 0.3% overnight, while Covid infections and death numbers dominated in the UK and parts of Europe and reignited lockdown concerns. VIX rose to 33.35, while the UST bonds extended gains and bull-flattened further with the 10-year bond yield down to 0.77%. The $54b 2-year auction fetched a bid-cover of 2.41x. The 3-month LIBOR eased to 0.2133%. Durable goods orders rose more than expected by 1.9% mom in September, while nondefense capital goods orders also added 1.0% (expected: 0.5%) to a 6-year high. Meanwhile, the FHFA house price index also rose 1.5% mom in August, which is double that of expectations. Consumer confidence, however, unexpectedly slipped from 101.3 to 100.9 in October, dragged down by a lower expectations gauge (98.4 versus 104.0) which offset the present situation optimism (104.6 versus 98.5), amid re-election fears about the economic outlook

CNH: China’s industrial profits rose for a 5th straight month but by a slower pace of 10.1% yoy in September. China announced to remove the counter cyclical factor to its daily RMB fixing model. The move will make RMB fixing more transparent. This shows China’s commitment to exit the previous intervention and allow the market to play a bigger role in price searching for RMB. We think the directional impact is limited. The near term outlook of the currency will continue to depend on broad dollar movement and the change of China’s balance of payment.

From a technical and trading perspective, the USDCNH is show increasing signs of completing a cycle from the June high, the decline has subdivided in a technical elliot wave fashion, the cycle low at 6.6260 has a high probability of representing the 5th wave low, supported by significant momentum divergence. If 6.6260 remains intact then we can reasonably expect a three wave pullback to develop and challenge the 4th wave high at 6.8500, this view will be encouraged with a closing breach of symmetry swing resistance sited at 6.7362. Look for supply at the projected trendline resistance currently cooking in around 6.7500, as long as bids prove sufficient on a pullback to 6.6800 look for a C wave to test the pivotal 6.8500 as highlighted by the amber boxes in the chart.

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